Corporates Should Try Out Public Debt Issues: Patil

Corporates should go for public debt issues to raise funds rather than bank loans or private placement of debt paper, said R H Patil, chairman of Clearing Corporation of India Ltd. He was speaking at a seminar on 'Designing of a Sound Financial Market Structure in Post-Crisis Asia', organised by Business Asia Consulting Ltd.

Patil said: "Our companies are slow in reaping the advantages of public debt issues. With financial institutions finding it difficult to raise long-term funds and banks not keen to extend term loans due to asset-liability mismatches, accessing retail market for long-term funds would be advantageous."

He added that companies had a misconception that they can avail of cheaper funds from banks and financial institutions.

During the financial year 2000-01, there was Rs 69,500 crore of private placement of debt paper compared with only Rs 6,421 crore of public issues.

Patil said 80 per cent of the savings in the country was from the households, who, he feels, are the potential investors for public debt issues.

He urged banks and financial institutions to participate more in capital markets to help the corporates raising money from public debt issues.

Patil said there was less transparency in private placement compared with public issues. "At present, the Indian financial system is sitting on a huge bomb of privately-placed issues. It explodes any time, there will be another huge financial crisis," he added.

Patil also asked commercial banks to develop the retail trading in the government securities market.

"The branch network of all the commercial banks is much larger than the reach of the stock exchanges. Hence, with active participation from the banks, there can be very deep retail market for government securities," Patil felt.